Ministers were told the greenhouse emissions impacts of the climate spend in Budget 2023 would be 'minimal' and take time to materialise
Officials at the Treasury as well as a powerful board of agency chief executives focused on climate advised Cabinet that Budget 2023 was unlikely to seriously cut greenhouse gas emissions.
Though $1.9 billion was allocated from the Climate Emergency Response Fund at the Budget, much of it was focused on adapting to the impacts of climate change. The emissions impact of the remaining policies targeted at cutting pollution "were minimal and do not offer significant immediate abatement, particularly for the first Emissions Budget to 2025", the climate change executive board said in newly released official documents about the Budget process.
"There are limited options available for increasing the emission reduction impact of the package and we would suggest agencies prioritise implementing existing initiatives," Treasury officials advised in late February. This was partly because agencies had submitted fewer emissions-cutting bids than in previous years.
READ MORE: * Budget 2023: Climate fund slashed by $800m * A disappointing Budget for the climate
Agencies' own estimates of the emissions impact of their policies was also dour.
"Agencies have indicated that many initiatives, both in and outside the package, are not expected to have material emissions impacts, and any emissions impacts they may have are expected to be very small," the Treasury wrote to Finance Minister Grant Robertson in late March.
In total, at that stage, the emissions impact of the full package was estimated at 4.3 million tonnes of CO2-equivalent emissions between 2023 and 2030. That compares with 1.2m to 4.2m tonnes between 2022 and 2025 delivered by last year's Budget. A later estimate put the figure for Budget 2023 at 4.8m tonnes.
These estimates were considered "highly uncertain", officials said.
"The quality of emissions analysis provided to us was generally low, often involving indirect emissions impacts and highly uncertain assumptions about attribution and additionality. The timeframes for quantified emissions reductions were also inconsistent across initiatives; this has added to the complication of calculating an aggregate emissions impact of the package."
One initiative had the greatest impact of all – the $300 million top-up of New Zealand Green Investment Finance. This was expected to be responsible for 90 percent of the emissions cuts, though there were questions about the degree to which the cuts could be attributed to the Government spend and whether they might have happened anyway.
The documents also show the progression of alarm bells at the Treasury as the carbon price plummeted across the first half of the year. The Climate Emergency Response Fund (Cerf) is sourced from Emissions Trading Scheme auctions. When the price falls, the Government gets less cash in those auctions and has less to spend on climate policy.
While the price was still rising last year, officials noted the Government's decision in December on price controls was likely to have an impact. At the time, the Treasury assumed Cabinet would follow the Climate Change Commission's advice to tighten controls or at least move in that direction from the status quo. The move was expected to reduce the number of carbon units sold but boost the price, so officials mostly worried about underestimating the cash available for climate spending.
In the end, Cabinet overrode the commission and kept settings virtually unchanged. This prompted a crash in the carbon price, so that the Cerf had a $2.7b deficit by the end of March. Some of this was covered by general borrowing, some by money returned from climate policies axed in the so-called policy bonfire, and the Government ended up slashing $800m from the fund to make up the remainder.
The seriousness of the shortfall was only recognised in the last few weeks before the Budget. In a briefing on April 4, the Treasury suggested that Robertson trim the fund by $500m – the first time the need to do so was mentioned.
By April 11, Robertson took a paper to Cabinet rejecting that idea and saying the difference would instead be made up by general borrowing.
Sometime between that date and Budget day in mid-May, the shortfall was found to be $200m greater than expected and the decision was evidently made to cut $800m from the Cerf.
